With its trade with mainland China facing a dramatic downturn, Taiwan is looking to South and Southeast Asia to make good the shortfall, while also making plans to invest some US$28.9 billion in overhauling domestic infrastructure.

On track for transformation: Rail infrastructure set for major investment.

On track for transformation: Rail infrastructure set for major investment.

Perhaps unsurprisingly, Taiwan's new Tsai Ing-wen-led administration has designated economic development as its priority. With the Democratic Progressive Party (DPP) back in power, the thaw in cross-strait relations seems to be over, obliging the government to find new ways of spurring economic growth in order to make up for the likelihood of diminished trade with mainland China.

As a consequence, the government has formally adopted the New Southbound Policy, which calls on Taiwanese businesses to invest in Southeast and South Asia, while identifying new business opportunities in these regions. This is seen as the key means of diversifying beyond the mainland market.

In terms of its domestic focus, the government has rolled out its far-reaching Forward-looking Infrastructure Programme (FIP), which will see some NT$880 billion (US$28.9 billion) of public funding allocated to infrastructure development in five key sectors over the next eight years. In addition to government spending, it is estimated that this project will require up to NT$1.7 trillion in public and private-sector investment. The sheer size of the proposed infrastructure programme is expected to be one of the principal drivers of Taiwan's economic growth over the next 30 years.

The FIP was officially launched by the Executive Yuan, the executive branch of Taiwan's government, on 23 March this year. This saw the formal adoption of five areas of infrastructure development as national priorities – railway construction; water resources, green energy; digital infrastructure; and urban-rural development.

In terms of railways, the aim is to develop infrastructure that is both safe and convenient, while the new water resources must meet the challenge of climate change. Sustainability, meanwhile, is the watchword with regard to the proposed green energy infrastructure projects, with the investment in digital infrastructure expected to nurture the smart economy. In the case of the designated urban and rural infrastructure initiatives, these are intended to remedy the imbalance in terms of quality of life between city dwellers and their country-living counterparts.

Among the five designated development areas, investment in the rail network has attracted the most attention and the most funding – NT$414.2 billion. According to Hochen Tan, Taiwan's Minister for Transportation and Communications, the projects identified will transform the sector over the next 30 years.

Overall, five rail-related areas have been earmarked for investment. Of key importance is the proposed link between the territory's high-speed rail lines and the Taiwan Railways Administration's (TRA) existing railway network. In addition to this, the TRA's services in eastern Taiwan are to receive a major upgrade, improvements are to be made to a number of commuter lines, mass rapid transit systems are to be built in several Taiwanese cities, while the tourist-oriented railways in central and southern Taiwan are to receive an extensive overhaul. In total, 38 construction projects have been identified in the rail sector, which together represent a domestic output value of NT$700 billion.

Another element of the FIP to have drawn widespread attention is its proposed green energy initiative. This is in line with the DPP's longstanding commitment to decommission all of Taiwan's nuclear power plants by 2025. This is something of a challenge given that some 12% of Taiwan's total power requirements were met by nuclear facilities in 2016, while renewable energy sources provided only 4.8%. Within eight years, it is envisaged that the share of nuclear-reliant energy will drop to zero, with renewable energy's share rising to 20%.

According to Yuan Wu Tsung-tsong, a Minister without Portfolio attached to the ExecutiveYuan, some NT$50 billion will be invested in solar power, wind power and the Shalun Green Energy Science City project over the next eight years. As a result, by 2025, the installed capacity of Taiwan's solar power generation and wind power generation facilities is expected to reach 20GW and 4.2 GW respectively. In order to deliver this, around NT$1.8 trillion in public and private-sector investment will be required, while Taiwan Power, a publically-owned utility company, is expected to contribute a further NT$200-300 billion.

A number of the territory's green energy construction projects have already attracted the support of several internationally renowned industry players and investment banks, including Siemens, the German electronics giant, and Macquarie, the Australian financial services group. Highlighting this, Dr Lee Chih-kung, Taiwan's Minister of Economic Affairs, said such projects had struck a chord with many domestic and overseas companies despite only having limited financial support from the government. As a result, the sector is expected to attract up to NT$3 trillion in investment over the next 10 years, establishing Taiwan as one of Asia's leading producers of green energy.

Speaking at the launch of the FIP, Lin Chuan, Taiwan's Premier, said the programme reflected the government's commitment to stimulating economic growth, while ensuring that any investment proved effective. Although the economic outlook has improved somewhat, he said the government was keen to ensure than any spending was in line with Taiwan's long-term needs.

Similar considerations also apply to the government's policy on external trade, with the New Southbound Policy seen as an essential means of mitigating the decline in trade with the mainland. In line with this, Taiwan is looking beyond simply seeing its ASEAN and Southern Asia neighbours as production bases for OEM exports. Instead, the government is hoping to establish new economic and trade partnerships with the countries concerned, largely through industry supply chain integration, domestic market link-ups and cooperation on mutually beneficial infrastructure projects.

In line with this, the Chinese National Federation of Industries (CNFI), Taiwan's leading trade body for the manufacturing industries, recently announced the launch of the Committee on Asia-Pacific Industrial Cooperation (APIC). Jointly headed by Lee Chih-kung, the Minister for Economic Affairs and Rock Hsu, the CNFI Chairman, the committee consists of six teams, each focussing on one of Taiwan's target markets – the Philippines, Vietnam, Malaysia, Thailand, Indonesia and India. The committee's overall remit is to assist any Taiwanese business looking to expand into the Southeast-Asian or South Asian markets through both government and industry channels.

Speaking at the launch event, Hsu said the APIC had been created to drive growth by ensuring that Taiwanese industries could fully participate in the economic and industrial development of many of their ASEAN neighbours, while also working more closely with other countries in the Asia-Pacific region. In a similar vein, Lee said that the Ministry of Economic Affairs (MOEA) fully backed the new committee and would put all of its resources at its disposal, as well as that of its subsidiary bodies, most notably the Taiwan External Trade Development Council.

The primary target of the New Southbound Policy is the wider ASEAN region, Taiwan's second largest trade partner after the mainland. Last year, however, trade between the ASEAN bloc and Taiwan dipped somewhat, with the total export / import figure falling to US$78.53 billion, a year-on-year drop of 2.7%. More specifically, Taiwan's exports to the ASEAN bloc fell by 0.6% to US$51.33 billion, while imports from ASEAN fell 6.4% to US$27.19 billion.

With trade with the mainland off the agenda, is the clock ticking for Taiwan's economy?

With trade with the mainland off the agenda, is the clock ticking for Taiwan's economy?

As of the end of last year, however, there have been signs that Taiwan's external trade is picking up. In January this year, Taiwan's exports grew by 7% year-on-year, reaching a total of US$23.74 billion. This upturn was more than sustained in February, with exports growing by 27.7% to a total of US$22.66 billion. More reassuringly still, exports to the 18 designated New Southbound countries grew by a hefty 25% in February. As a result, the government is now predicting that Taiwan's overall export growth for the year ending 31 December 2017 will be around 8.5%, a six-year high.

In terms of future prospects, Taiwan's export orders grew by 22% year-on-year in February – the seventh consecutive month to show a gain – to reach a total of US$33.75 billion. Significantly, orders in the information, communications and electronic sectors were at an all-time high, while demand for machinery recorded its second highest figure.

As a consequence, the Directorate General of Budget, Accounting and Statistics, the government department responsible for budgetary issues, has revised its GDP growth forecast to 1.92%, an increase of 0.05%. Similarly optimistic, the Chung-hua Institution for Economic Research, a Taipei-based economic think tank, is now predicting that Taiwan's GDP will grow by 1.73% this year, a 0.44% rise over 2016. The most favourable figures of all, however, come courtesy of DBS, the Singapore-headquartered financial services group, which is predicting that Taiwan's economy could expand by as much as 3.1% this year.

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